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Brooklyn Journal of Corporate, Financial & Commercial Law
Securities regulation; Investment advisers; Third party examiners; Third party examination models; Self-regulatory Organizations (SROs); Arbitrary and Capricious Standard; Administrative Procedure Act (APA); Administrative Rulemaking; Section 206(4) of the Investment Advisers Act of 1940; “Reasonably designed to prevent fraud” test; Unauthorized tax; Congress’s Power of the Purse; Securities regulation; Compliance policies and procedures; Adviser examinations; Nationally recognized statistical rating organizations (NRSROs); Proxy advisory firms; Certified Financial Analyst (CFA) Institute/CFA; Public company auditors; Chief Compliance Officers (CCOs); Compliance audits and reviews; Internal controls; Cost-benefit analysis; Financial regulation
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Mandatory Third Party Compliance Examinations For Investment Advisers: An Sec Waterloo?, Mercer Bullard
Mandatory Third Party Compliance Examinations For Investment Advisers: An Sec Waterloo?, Mercer Bullard
Brooklyn Journal of Corporate, Financial & Commercial Law
The Securities and Exchange Commission (SEC or Commission) appears to be on the verge of requiring investment advisers to undergo third party examinations. One justification for the rulemaking is that the Commission lacks sufficient resources to examine advisers frequently enough. Another is to create indirectly a self-regulatory organization (SRO) for investments advisers. Both may leave a rulemaking particularly vulnerable to challenge as arbitrary and capricious under the Administrative Procedures Act. This Article considers three novel grounds on which a rulemaking may be successfully challenged. Congress has repeatedly rejected SEC requests to provide additional funding for examinations or to create an …